O2 brand is stronger than Three, but will that save it from the axe?
Three, owned by Hutchison Whampoa is in exclusive negotiations to purchase O2 from Telefonica, which raises questions about which brand will remain after the deal is inevitably completed. O2 is the stronger brand, but Three is likely to takeover.
It was announced this morning (23 Jan) that Hutchinson Whampoa is set to purchase O2 for £10 bn.
An O2 spokeswoman told Marketing Week that the move would mutually benefit both companies to drive better value, quality and investment. She adds that the negotiations are subject to approval by both brands as well as a merger clearance.
To gain merger clearance the deal will have to be approved by Ofcom and the European Commission, as the partnership would reduce the number of major mobile operators to 3, allowing less competition for consumers.
Kester Mann, principal analyst of operators at CSS Insight says: “If approved, the deal would transform the UK mobile market. It would create a leader with over 30 million customers and a market share of 41%.”
The news comes after the mobile market was shaken by BT and EE’s merger in December (2014), which increasingly put pressure on other networks to offer combined services that range from broadband, TV, mobile and phone lines.
A subject of debate lies in whether Hutchinson Whampoa, a smaller brand in the UK, will rebrand O2, which has accrued brand strength since it was initially created in 2002.
On YouGov’s BrandIndex, – a combined evaluation of consumer’s perception of quality, value, reputation and satisfaction, O2 comes first among a list of 11 mobile operators with a score of 11.3. The brand is also a leader in ‘awareness’ on the brand-measuring tool, with a score of 91.5.
O2 also showed a growth in Q3 2014 with a profit of £1.4 billion and 24 million subscribers.
In comparison, Three is much smaller and a weaker brand. Three’s index score is 1.3 coming in seventh place on the list of 11. ‘Awareness’ of the brand measures at 74.5.
Hutchinson Whampoa only delivers 6-month interim reports; by June 2014 it cited a profit of £974 million in the UK, and a customer base of 9.7 million.
Rafe Blandford, a mobile strategist at DigitasLBi says: “While O2 has many more customers, it is likely that it is [Three’s] brand that will survive, mirroring what happened in Ireland last year in similar circumstances.”
“The O2 brand has disappeared from the Irish landscape over the last 8 months. The process is likely to be more drawn out in the UK due to the relative size of operations,” he added.
Hutchinson Whampoa made a similar acquisition in Ireland in July 2014. Although O2 was rebranded Three, it was the smaller partner in that specific transaction.
In the UK, as well as being the bigger partner O2 also has a range of popular loyalty offerings. O2’s Q3 2014 results showed that it gave £2.5 million to its customers through the offers.
O2’s Priority Moments service offers free lunches, drinks and retail experiences to consumers through its app. Priority experiences, such as the app and the offer of O2 priority tickets for live concerts and sporting events are said to drive a one per cent growth in subscribers, according to Q3 results.
Mann told Marketing Week that O2 is the stronger brand name, which has benefitted from investment in sport sponsorship and naming rights for the O2 Arena.
However, he says: “It is likely that Hutchinson will bring subscribers under the Three umbrella, this would also enable it to achieve synergies with its other European operations.”
Telefonica have done their best to ruin the O2 brand with a spectacularly bad customer service experience (Ofcom consistently have O2 as the worst performing mobile telecom company). Three is an exceptional brand, both O2 customers and the Three brand will benefit from this transaction if Ofcom allow it to go through.